PUBLIC RADIO'S MARKETPLACE COMMENTARIES:

Marketplace, April 26, 2006

You Can Bank on Wal-Mart

Wal-Mart wants to start a bank. Well, not exactly a bank. Wal-Mart says all it wants to do is provide customers with its own credit-card service on Wal-Mart sales, so it can trim costs on the millions of payments it processes each year. Wal-Mart has been telling bank regulators it has no intention of expanding into other banking services.

Most Wal-Mart watchers (including the entire U.S. financial industry) don’t believe Wal-Mart. They see this move as the Wal-Mart camel’s nose under the tent of commercial banking. First come credit-card services on Wal-Mart sales, then discounted credit-card services on other sales, then commercial deposits and loans. Presto. Before you know it, Wal-Mart is a full-service commercial bank.

I say, let Wal-Mart under the tent. Commercial banking is now one of the stodgiest and least-competitive parts of the American economy. Fees and prices are way too high. Service is lousy. The industry needs a shakeup. Have you ever had a bank give itself an interest-free “float” on your money while you waited two weeks for a check to clear? Have you ever filled out twenty-five forms to get a simple bank loan? Have you ever collected anything close to fair interest on money you keep in your checking account?

I guarantee you Wal-Mart’s low-price business model will force complacent bankers to do better.

Also bear in mind many Wal-Mart customers don’t have much money. They need cut-rate banking services. Many of these folks are excluded from mainstream banking. They don’t even have bank accounts. Wal-Mart could help them.

Critics say Wal-Mart is so big – 3,900 stores, representing 10 percent of the U.S. retail economy – if it entered commercial banking it would wipe out the competition. Then it would turn around and raise banking fees. That’s absurd. You really think Wal-Mart would wipe out the Bank of America? MBNA? Citigroup?

Other critics say a Wal-Mart bank would put community banks out of business. But community banks have been crying wolf for years. They fought deregulation that allowed nationwide banking, claiming it would put them out of business. But they’re still thriving. They provide personal service that the big banks can’t provide, and fill an important niche.

Then there’s the charge that if Wal-Mart went into banking it would subject depositor’s money to unreasonable risk. It could force its banking arm to lend it money at low interest rates, or drain its bank of capital if Wal-Mart fell on bad times. Well, that danger is just as likely – if not more probable – at the banking arm of General Motors, or GE’s financial arm, or the bank that’s run by Wal-Mart’s rival, Target. All of these commercial giants are in the banking business. The federal government ought to make sure all of them keep their bank deposits separate from their other commercial businesses. There’s no reason to single out Wal-Mart as a special risk.

Look, I don’t like the fact Wal-Mart pays its employees low wages and low or non-existent benefits. I don’t like it that Wal-Mart squeezes every last cent out of its suppliers, forcing many to go abroad. I don’t like what Wal-Mart has done to thousands of main street retailers. And I don’t know for a fact that Wal-Mart will go into commercial banking.

But let’s give credit where credit is due. Wal-Mart does cut prices. And that means it could give credit where credit is most needed – to the nation’s poor, who need cut-rate banking services more than anyone.